Sustainable Finance
MARKET HIGHLIGHTS | APRIL 2021
The start of 2021 has been highly intense for the green, social, sustainability and sustainability-linked (GSSS) market and the trends we observed in the second half of 2020 in rising issuances actualized. This significant increase relates to both market size and number of issuances.
Reviewing the SPOs delivered so far in the year by ISS ESG, we have seen a variety of issuers from different sectors entering the Sustainable Finance market for the first time ever. This includes Packaging, Road Transportation and Cement sectors, typically all nonexistent in the GSSS market. With this, we recognize the positive impact generated by the publication of the Sustainability-linked Bond Principles and Climate Finance Transition Handbook, both newly offering a solid governance framework for all issuers.
As ever, we are proud of our clients’ successes, and pleased to have supported many Environmental Finance award winners. We would like to congratulate Rabobank for the Award for innovation – bond structure (sustainability bond), MuniFin for the Green bond of the year (local authority/municipality), Suzano for the Sustainability-linked bond of the year and the Federal Republic of Germany for the Green bond of the year (sovereign).
It is with thanks to all our clients’ achievements and their dedication to climate risk management that ISS ESG nearly doubles its SPO market share as a premier reviewer of green, social, and sustainability bonds, according to Environmental Finance.
By way of background, ISS Corporate Solutions (ICS) works in collaboration with ISS ESG, the responsible investment arm of Institutional Shareholder Services, as the distributor of SPOs. While the SPOs are sold and distributed by ICS, the analytical work to prepare and issue SPOs is performed by ISS ESG.
Hydrogen: The World Is Watching
We recently shared ISS ESG’s primer on Hydrogen, exploring its contribution to a sustainable future. We’ve since observed increasing interest and positive feedback from companies, stating how the paper encouraged internal discussions on ways to include hydrogen within their sustainable financing program.
We are pleased this piece highlighted the shift towards a green and blue hydrogen economy, with increased consideration for environmental and social factors on which we all contribute towards.
As external reviewers, ISS ESG has delivered over 240 SPOs according to rigorous and well respected standards. This is a summary of our client successes in Q1 2021 (1 January – 31 March 2021)
ACEA, the Italian utility provider, successfully placed its first green bond in January 2021, for a total of €900m divided in two tranches. The first of €300m and a coupon of 0% will mature on 28 September 2025, whilst the second tranche of €600m and a coupon of 0.25% will mature on 28 July 2030.
The proceeds of the bond will be used to finance projects relating to the protection of water resources, the resilience of the electricity distribution system, energy efficiency, e-mobility, development of the circular economy and increased production of renewable energy.
ISS ESG provided an SPO for the issuance, with a positive opinion on the alignment of the framework with the ICMA Green Bond Principles and LMA Green Loan Principles, and on the sustainability quality of the project categories. The use of proceeds categories have a positive contribution to SDG 6 ‘Clean Water and Sanitation’, 7 ‘Affordable and Clean Energy’, 12 ‘Responsible Production and Consumption’ and 13 ‘Climate Action’, SDG 3 ‘Good Health and Wellbeing’ and 9 ‘Industry Innovation and Infrastructure’.
Ardagh Metal Packaging issued $2.8 billion worth of green bonds, the biggest green issuance in the high-yield market to date. Within three years, the company plans to allocate funds equivalent to the bond proceeds to projects eligible for its green financing framework, which addresses areas like procuring recycled aluminium and using renewable energy. ISS ESG provided an SPO on the alignment of Ardagh’s Green Bond Framework against the ICMA Green Bond Principles and concluded that the use of proceeds categories have a significant contribution to SDGs 7 ‘Affordable and clean energy’, 12 ‘responsible consumption and production’ and 13 ‘Climate action’. The environmental and social risks associated with those use of proceeds categories have been mostly appropriately managed.
Atenor, the Belgian real estate company, has successfully concluded the placement of its inaugural Green Bond in March 2021, for an amount of 100 million euro with a double tranche of 4 and 6 years accompanied by gross coupons of 3% and 3.50%.
The net proceeds from the public offer will be exclusively allocated to the financing or refinancing, in whole or in part, green and energy-efficient real estate projects, which contribute to Atenor’s environmental objectives within the framework of its Green Finance Framework.
ISS ESG provided an SPO for the issuance, with a positive opinion on the alignment of the framework with the ICMA Green Bond Principles. The environmental and social risks associated with the use of proceeds category have been well managed.
Bayern Labo, the Munich-based financing institution, mandated ISS ESG to assist with the reverification of its third social bond. The proceeds of the bond aim at financing mortgage loans for social housing. The use of proceeds category has a significant contribution to SDG 1 “No poverty” and SDG 11 “Sustainable cities and communities” according to the methodology of ISS ESG.
ISS ESG concluded that the framework and the asset pool were positive according to ICMA Social Bond Principles, and ISS ESG Key Performance Indicators.
Berlin Hyp, a leading issuer of green bond in the real estate sector in Europe, obtained a reverification of its Green Bond Framework from ISS ESG. The use of proceeds categories have a significant contribution to SDG 11 “Sustainable cities and communities” and a limited contribution to SDGs 7 “Affordable and clean energy’ and 13 ‘Climate action’. The environmental and social risks associated with those use of proceeds categories have been well managed. The Framework is in line with the Green Bond Principles administered by the ICMA.
BNG Bank, a Dutch bank specializing in providing financing for publicly owned organizations, has published its inaugural Sustainable Development Goals Bond Framework. Sustainable bonds will (re-)finance eligible asset categories which include access to essential services, socioeconomic advancement, employment generation, clean transportation, green buildings, environmentally sustainable management of living natural resources and land use, pollution prevention and control, sustainable water and wastewater management.
ISS ESG provided a SPO on the framework and found that BNG Bank’s Framework aligns with ICMA green, social and sustainability bond guidelines and that the environmental and social risks associated with those use of proceeds categories have been well managed. Furthermore, the selected use of proceeds categories advance SDG1 ‘No poverty’, SDG3 ‘Good health and well-being’, SDG4 ‘Quality education’, SDG8 ‘Decent work and economic growth’, SDG10 ‘Reduced inequalities’, SDG11 ‘Sustainable cities and communities’, SDG15 ‘Life on land’, SDG16 ‘Peace, justice and strong institutions’.
BPER Banca has successfully concluded the placement of its inaugural Social Bond (Senior Preferred) for an amount of 500 million euro and a 6-year maturity for institutional investors in March 2021.
The bond, issued as part of a recently published Environmental, Social and Sustainability Bond Framework and under the 6 billion euro EMTN programme, will finance a selected portfolio of loans to SMEs which are covered by a government guarantee under the Italian Liquidity Decree in response to the Covid-19 emergency.
ISS ESG provided an SPO for the issuance, with a positive opinion on the alignment of the framework with the Social Bond Principles, and confirming a good management of environmental and social risks associated with the social projects.
Canary Wharf Group (CWG) is a British real estate company that develops, manages and owns interests in approximately 8 million square feet of office, retail and residential space across London. CWG mandated ISS ESG to assist with the inaugural issuance of Green Bonds under its Green Bond Framework. The proceeds of the bonds will go towards renewable energy and clean transportation categories.
ISS ESG concluded that the framework and the asset pool were positive according to ICMA’s Green Bond Principles and ISS ESG Key Performance Indicators. The asset pool also contributes positively to SDG 11 “Sustainable cities and communities”.
In February of 2020, Cassa Depositi e Prestiti (CDP), the Italian state-controlled investment bank, issued its first “Social Housing Bond” with proceeds going towards supporting social housing interventions, with initiatives dedicated to underserved segments of the Italian population.
One year later, it released its Social Housing Bond Report 2021, mandating ISS ESG to verify the report in terms of a) alignment with the commitments set forward in CDP’s Framework in line with ICMA’s Social Bond Principles (SBPs), b) alignment with the ICMA Harmonised Framework for Impact Reporting (HFIR), and c) soundness of allocation and impact indicators used and alignment with best market practices. The conclusion of such analysis was positive, with a full alignment on the aforementioned points.
De Volksbank, the Dutch financial institution, has achieved another milestone in its sustainable finance track record, with its newly launched Green Bond. The €500m bond has a 7-year tenor and a coupon of 0.375%. The proceeds of the bond, are used to finance green buildings which are in the top 15% low-carbon residential buildings in the Netherlands, and have received an EPC label A.
ISS ESG provided an SPO on the alignment of this newly set framework against the Green Bond Principles as administered by the ICMA, and against the draft model of EU Taxonomy (both March 2020 and November 2020 Draft Delegated Acts versions) on a best effort basis.
Eika Boligkreditt AS, the Norwegian credit institution, updated its Green Bond Framework at the end of January, along the lines of the Draft Model of EU Green Bond Standard. The proceeds of the green bond issuances will be used to finance green buildings which are in the top 15% low-carbon buildings in Norway.
ISS ESG provided an SPO on the alignment of this newly set framework against the Green Bond Principles as administered by the ICMA, and against the Draft Model of EU Green Bond Standard and associated EU Taxonomy, on a best effort basis.
ENCAVIS AG acquires and operates solar and (onshore) wind parks in Germany and other countries in Europe. Encavis obtained a CBI pre-issuance certification for its Green Bond targeting the acquisition of a wind park in Finland. The Green Bond is in full alignment with the CBI Standards and with the specific CBI criteria outlined for onshore wind power energy generation.
ISS ESG conducted an SPO for the inaugural green bond issuance under Faurecia’s Green Bond Framework. Faurecia is one of the world’s largest manufacturers of automotive components. In March 2021, it has successfully priced EUR 400 million of “Green Notes”, due 2029 at 2.375%. The launch of this inaugural green bond is fully in line with Faurecia’s commitment to sustainable mobility, and with the Group’s ambition to invest in hydrogen mobility, gaining momentum around the world.
ISS ESG assessed that the framework is aligned with the ICMA Green Bond Principles and on the sustainability quality of the projects. The Green Bond will (re-)finance eligible asset category, for the manufacture of low carbon technologies for transport. The selected proceeds’ categories have a significant contribution to the SDGs 6 ‘Clean Water and Sanitation’, 7 ’Affordable and clean energy’ and 13 ‘Climate action’.
Hypo Tirol launched the first Austrian euro benchmark covered bond in social format that supports affordable housing in the region. The following investments fall under the following use of proceeds categories: non-profit housing, housing subsidies and refurbishing with social and family-policy-related objectives and providing local communities with affordable and high-quality housing.
ISS ESG provided an SPO on the alignment of Hypo Tirol’s Social Bond Framework against the ICMA Social Bond Principles and concluded that the use of proceeds categories have a significant contribution to the SDG 10 ‘Reduced inequalities’ and SDG 11 ‘Sustainable cities and communities’. The environmental and social risks associated with those assets have been well managed.
Intesa Sanpaolo, the Italian financial institution, placed a new 7-year Green Bond for a nominal value of €1.25 billion at the beginning of March, marking the inauguration of its new ESG Framework.
The proceeds of the bond were used to finance projects relating to includes green mortgages granted for the construction or the purchase of energy-efficient properties (energy classification A and B) in Italy.
ISS ESG provided an SPO for the issuance, with a positive opinion on the alignment of the framework with the ICMA Green and Social Bond Principles, Sustainability Bond Guidelines, and on the sustainability quality of the project categories. The use of proceeds category has a positive contribution to SDG 11 ‘Sustainable cities and communities’ and SDG 13 ‘Climate Change’. The environmental and social risks associated with the assets have been well managed.
Kensington, the British mortgage provider, successfully placed its first social RMBS in February 2021, sized at £472 million. The proceeds of the bond will be used to finance owner-occupied home loans to an underserved population made up of applicants with complex income or who are self-employed, first-time buyers with limited credit history, contractors and later life or younger borrowers living in the UK.
ISS ESG provided an SPO for this issuance, with a positive opinion on the alignment of the framework with the Social Bond Principles, and on the sustainability quality of the project category. The use of proceeds category has a positive contribution to SDG 10 ‘Reduced Inequalities’.
Kraftwerke Oberhasli AG (KWO), a company almost exclusively engaged in the operation of hydropower plants in Switzerland, successfully placed its first green bond for Swiss storage and large-scale hydropower. The net proceeds of this fixed-interest bond in the amount of CHF 100 million will be used to refinance KWO’s hydro plants.
ISS ESG provided an SPO on the alignment of KWO’s Green Bond Framework against the ICMA Green Bond Principles and concluded that the use of proceeds category has a significant contribution to SDGs 7 ‘Affordable and clean energy’ and 13 ‘Climate action’. The environmental and social risks associated with the use of proceeds category have been appropriately managed.
Brazilian car rental company Movida raised US$500 million in a sustainability-linked bond issuance, which also marks the company’s first international debt tap.
The debt instrument is linked to Movida’s ability to achieve, by December 31, 2025, a specified target reduction of Greenhouse Gas Emissions, as confirmed by an independent external verifier, under Movida’s new Sustainability-Linked Securities Framework adopted in January 2021. If this target is not met, the coupon rate on the bonds will automatically step up to 5.5% per annum.
ISS ESG provided an SPO on the alignment of the Sustainability-Linked Debt Instruments with the ICMA Sustainability-Linked Bond Principles and concluded that the KPI selected is material and the target ambitious against the company’s past performance and sectorial peer group.
Orpea, the French operator in dependency care, has successfully concluded the placement of its inaugural Green and Social Bond in March 2021, for an amount of €500 million, a maturity of seven years and a fixed coupon of 2.00%. The net proceeds from the offer will be allocated to the financing or refinancing of healthcare and medical care facilities. ISS ESG provided an SPO for the issuance, with a positive opinion on the alignment of the framework with the ICMA Green and Social Bond Principles, Sustainability Bond Guidelines and LMA’s Green Loan Principles. The environmental and social risks associated with the use of proceeds categories have been well managed, while a positive contribution to SDG 3 “Good health and well-being” and SDG 11 “Sustainable cities and communities” has been determined.
Pilgrims Pride Corporation, one of the world’s largest chicken producers, has issued its inaugural Sustainability-Linked bond amounting to $900 million. ISS ESG provided a SPO on the issuance and found that the selected KPI, based on Scope 1 and 2 emissions, was relevant and core but not or only moderately material to the issuer’s sustainability corporate strategy as it does not include Scope 3 emissions, estimated to represent the majority of the issuer’s GHG emissions.
Redes Energéticas Nacionais (REN), the company responsible for managing Portugal’s electricity and gas network, is to go to the financial markets with its first-ever issue of ‘green’ bonds, in an amount of €300 million, with the debt to have a maturity of eight years and a fixed yield.
The company mandated ISS ESG to assist with the verification of its inaugural green bond. ISS ESG finds that the bond aligns with the ICMA Green Bond Principles and LMA Green Loan principles. The green bond will (re-)finance eligible assets including integration and enhancement of the transmission capacity for renewable energy. Moreover, the issuer shows a good sustainability performance and has been given a rating of B, which classifies it as ‘Prime’ by the methodology of the ISS ESG Corporate Rating.
Simpar issued a $625m worth sustainability-linked debt. Through its subsidiaries, Simpar operates segments related to logistics services, car rental and fleet management, leasing of truck, machinery and heavy equipment, mobility and logistics focused on public tenders and financial services for the purchase of vehicles and equipment (BBC). The debt instruments are linked to Simpar’s ability to achieve, by December 31, 2025, a specified target reduction of Greenhouse Gas Emissions, as confirmed by an independent external verifier, under Simpar’s new Sustainability-Linked Securities Framework adopted in January 2021. If this target is not met, the coupon rate on the bonds will automatically step up to 5.450% per annum.
ISS ESG provided an SPO on the alignment of the Sustainability-Linked Debt Instruments with the ICMA Sustainability-Linked Bond Principles and concluded that the KPI selected is material and the target ambitious against the company’s past performance and sectorial peer group.
SNCF, the rail industry’s leading issuer of green bonds in Europe and around the world, updated its Green Bond Framework in January 2021 and obtained an SPO from ISS ESG. Adding to the 5.7 bn Green Bonds outstanding as of December 2019, the Green Bond Programme of SNCF will (re-)finance the following eligible project and types of investments: maintenance, upgrade and energy efficiency of rail systems; new rail lines and lines extension; other investment linked to climate change challenges, protection of biodiversity and natural resources; zero-direct emissions train fleet purchase, renovation and maintenance.
ISS ESG concluded that the renewed use of proceeds categories have a positive contribution to SDGs 7 ‘Affordable and clean energy’ and 13 ‘Climate action’. The environmental and social risks associated with those green projects have been well managed.
ISS ESG assisted Solaris Water with the verification of the first Sustainability-Linked Securities Framework published by a Water Midstream Infrastructure company in the US. The coupon of this bond is tied with a recycled produced water sold increase target. ISS ESG concluded that the KPI and associated target selected by the company for this transaction was material and ambitious in comparison to the company’s past performance and sectorial peer group practices.
Sunrun, a US-based provider of residential solar electricity, successfully placed its green bond in March 2021. The net proceeds of this fixed-income note will be used to fund projects in solar photovoltaics (for residential rooftops) and solar energy components.
ISS ESG provided an SPO for this issuance, with a partially positive opinion on the alignment of the framework with the Green Bond Principles, and a positive opinion on the sustainability quality of the asset pool. The issuer received a positive ‘B-‘ rating, in line with the very high ‘Prime’ threshold of the sector, according to ISS ESG’s Corporate Rating methodology.
The asset pool contributes positively to SDG7 “Affordable and clean energy” and SDG13 “Climate action”.
For the tenth consecutive time, TenneT mandated ISS ESG to verify the sustainability quality of its renewed Green Bond Framework and Green Bond Asset Pool. The Green Financing Instruments will (re-)finance the eligible asset categories Transmission of renewable electricity from offshore wind power plants into the onshore electricity grid using direct/alternating current technology, and Development, construction and reconstruction of the onshore electricity grid to enhance the transmission capacity for renewable energy.
ISS ESG finds by (re)financing the 24 transmission projects in its asset pool, the use of proceeds have a significant contribution to SDGs 7 ‘Affordable and clean energy’ and 13 ‘Climate action’. The environmental and social risks associated with those projects have been well managed.
Tikehau Capital, the French Asset Manager, mandated ISS ESG to assist with the verification of its Sustainable Bond Framework. The net proceeds of the future fixed-income notes will be used to fund both green and social projects. In its SPO, ISS ESG provided a positive opinion on the alignment of the framework with the Green Bond Principles, Social Bond Principles and Sustainable Bond Guidelines except for ‘Eligible ESG funds’ use of proceeds that is, per nature (pursuing general ESG objectives and not specific projects), not fully aligned with the above principles. The use of proceeds categories have a significant contribution to SDGs 1 ‘No Poverty’, 2 ‘Zero Hunger’, 3 ‘Good Health & WellBeing’, 4 ‘Quality Education’, 5 ‘Gender Equality’, 6 ‘Clean Water & Sanitation’, 7 ‘Affordable and clean energy’, 8 ‘Decent Work and Economic Growth’, 10 ‘Reduced inequalities’, 11 ‘Sustainable cities and communities’, 12 ‘Responsible Consumption & Production’, 13 ‘Climate action’ and 15 ‘Life on Land’.
UltraTech Cement, the largest manufacturer of grey, white cement and ready-mix concrete in India, has entered the Sustainability-linked bond market with an inaugural issuance amounting to $400 million. The bond which holds a maturity date of 2031 is linked to a Scope 1 emissions Sustainability Performance Target. UltraTech has committed to reduce its Scope 1 emissions by 22.2% by 31 March 2030, from a 2017 baseline.
ISS ESG finds that the KPI selected by the issuer is material to issuer’s business model and sustainability profile as Scope 1 emissions covers approximately 87.75% of UltraTech’s current carbon emissions (as per the company’s Sustainability Report 2019-2020). Furthermore, ISS ESG finds that the selected SPT is ambitious against the issuer’s past performance, against the issuer’s sectorial peer group and is committed to be ambitious against the Paris Climate goals and the UN SDGs. ISS ESG has assessed that UltraTech’s framework aligns with ICMA Sustainability-Linked Bond Principles.
Austria’s leading utility and pioneer in green finance VERBUND has achieved another milestone in its sustainable finance track record, with its newly launched Green and Sustainability-linked Bond. The 20-year, senior unsecured Bond was met with high market demand and was placed within the international and national institutional investor base. The €500m bond was oversubscribed several times.
ISS ESG provided an SPO on the alignment of this newly set framework against the Sustainability-Linked Bond Principles and Green Bond Principles as administered by the ICMA, and against the draft models of EU Green Bond Standards and associated draft of EU Taxonomy on a best effort basis.
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